A Tribute to Jack Bogle

Investors lost their most ardent and powerful advocate this week, but the investing world he began to envision some 70 years ago lives on.

John C. Bogle, better known as Jack, died from cancer on Wednesday. He was 89. Despite his illness, he worked until the end; just a few weeks ago, he spoke to Barron’s in what was to be his last interview, warning investors to pare back the risk in their portfolios. His work began, however, far earlier than most realize; the intellectual origins for the S&P 500 index fund he invented in 1976 can be found in the thesis he wrote at Princeton University before graduating in 1951.

The founder of Vanguard Group, inventor of the index fund, and relentless advocate for individual investors, forever changed the way Americans invest and the market functions. His efforts decades ago led to a sea change in how people save for retirement and how financial advisors operate, and in the rise (and what may be the eventual fall) of the mutual fund industry.

There is truly no other person who has been more influential in the investing world, and such an unerring force of good.

Bogle “was the original disrupter—he is to the investing world what Jeff Bezos is to the retail world,” his friend Peter Fitzgerald, the former Republican senator from Illinois, told Barron’s. Capitalism created all investors equal; Jack Bogle made them that way. Mutual funds had been the realm of the rich: Most had very high fees and high investment minimums, but were very low on transparency and disclosure. The index fund made it easy and cheap for masses of investors to participate in the stock market, and spawned the rise of exchange-traded funds in the 1990s, an invention that is pressuring mutual funds to become even cheaper, more transparent, and more tax efficient. There’s nearly $7 trillion invested in index products, accounting for a third of all the money in mutual funds and ETFs.

The firm he founded, however, is too often overlooked as an innovation in itself—albeit one that was never imitated. Vanguard, which Bogle founded in 1975, is essentially a nonprofit. (TIAA has a similar, though vastly more complicated, structure.) Vanguard is owned by its funds, and profits are returned to the funds, keeping costs low and allowing investors to retain more of their returns. Index funds are cheaper to operate than actively managed funds, but this structure ensures that even Vanguard’s actively managed funds carry fees that are much lower than average.

And, yes, Vanguard is also overlooked as one of the largest, and best-performing, active managers. Of the firm’s $5.1 trillion in assets today (which makes this nonprofit the world’s largest fund manager), nearly a third are in active funds. And those funds are top-performing: Vanguard ranked No. 2 in the 2018 Barron’s Best Fund Familes, which scores fund companies on the performance of their actively managed funds. The nearly $900 billion Vanguard had in actively managed stock and bond funds at the end of 2017 was more than 55 of the 59 firms on the list. Bogle’s legacy is not just the index fund; his emphasis was always on low costs.

“Jack had, in effect, traded the hundreds of millions of dollars that he might have pocketed by running Vanguard as a conventional asset management firm for interactions like these,” Morningstar’s Don Phillips told Barron’s, recalling a moment he witnessed when a Vanguard investor thanked Bogle for enabling his retirement. “To him, helping ordinary people realize a bit of their dreams was his greatest reward. It was a trade-off that any of his peers could have made; none but Jack did.”

Bogle didn’t stop at building a business with a huge competitive advantage: He wanted to fix the entire industry. He worked tirelessly with other advocates for individual investors, like research firm Morningstar and Sen. Fitzgerald, with whom he crafted the Mutual Fund Reform Act of 2004. The industry bitterly fought the bill, and it never became law, but Bogle’s impassioned testimony before Congress spurred the Securities and Exchange Commission to adopt rules that addressed 17 of the bill’s provisions, including a requirement that funds have independent directors, and other improvements to governance, as well as increased disclosures around fees and manager compensation.

His folksy nature and simple message were easy for some to dismiss. Even when Barron’s featured him on its cover in May 2018, there were a few murmurs among the staff that he “always said the same thing.” But that was what made him great. He never wavered in his message that investing should be easy, cheap, and, above all, safe. That message was completely radical as recently as a decade or so ago. It rankled an industry that seemed built around obfuscation, and, despite the accolades coming from every corner of Wall Street today, Bogle was long the subject of much ridicule. But the premise that underpinned his business was born of an academic rigor that he was not widely credited with, beyond his circle of admirers—many of whom are industry luminaries themselves.

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Critics are quick to point out that Bogle was famously negative on ETFs, but here, too, his objection was about the harm they could pose to investors: ETFs are, by design, easy to trade, and frequent trading can cost investors in terms of trading costs and forgone returns. Less cited is his defense of ETFs, which have been blamed for a variety of problems around market volatility. Only a “very small part” of the recent decline was probably influenced by high-volume ETF trading, he told Barron’s in December. “Talking about ETFs is like talking about people,” he said. “There are good ones, and there are bad ones.”

Paraphrasing Martin Luther King Jr., Bogle told Barron’s earlier this year that “the arc of fiduciary duty is long, but moving in the right direction.” And he intended to see that it kept doing so. “I have no corporate power,” he added. “But I believe I still have more ethical and intellectual power. And that is good enough for me.”

That ethical and intellectual power was a gift to us all. Bogle will be missed.

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